Bad Energy Policy and The Heritage Foundation’s Response

The National Basketball Association’s San Antonio Spurs are known for winning NBA championships in odd years, winning in 1999, 2005, 2005 and 2007. Bad energy bills are beginning to follow the same trend as Congress passed energy bills in 2005 and 2007 that focused on subsidies and mandates as opposed to a market-driven approach. 2009 is shaping up to be no better; in fact, the draft of new energy legislation suggests it will be much, much worse.

Chairman Henry Waxman (D-CA) of the Energy and Commerce Committee and Chairman Edward Markey (D-MA) of the Energy and Environment Subcommittee released draft legislation that includes:

• A clean energy title that promotes renewable sources of energy, carbon capture and sequestration technologies, low-carbon fuels, clean electric vehicles, and the smart grid and electricity transmission;
• An energy efficiency title that increases energy efficiency across all sectors of the economy, including buildings, appliances, transportation, and industry;
• A global warming title that places limits on emissions of heat-trapping pollutants; and
• A transitioning title that protects U.S. consumers and industry and promotes green jobs during the transition to a clean energy economy.

The draft summary can be found here. The full 648 pages can be found here.

Title 1, Clean Energy: The bill includes a renewable electricity standard (RES) that requires 6 percent of electricity come from renewable energy by 2012 and increases to 25% in 2025. It also includes incentives (read: handouts) to develop carbon capture and sequestration, clean fuels and vehicles, facilitates the transition to a smart grid, and allows Federal Energy Regulatory Commission (FERC) to take control over building new transmission lines to carry electricity generated from remote areas by renewable sources to more populated areas.

The Heritage Response: The only reason why a federally mandated RES is needed in the first place is that that these alternatives are far too expensive to compete otherwise. In effect, Washington is forcing costlier energy options on the public. This is particularly true of certain states, especially those in the Southeast and parts of the Midwest, where the conditions are not conducive to wind power. And since renewables are lavished with substantial tax breaks, a national mandate will cost Americans both as taxpayers and as ratepayers.

Secondly, any subsidy, whatever the source of energy or product, distorts normal market forces and encourages government dependence. By subsidizing a portion of the actual cost of a project through a loan guarantee, the government is actually distorting the allocation of resources by directing capital away from a more competitive project. Thirdly, upgrading the nation’s grid has merit, but it cannot be a bureaucratic, Washington-centric approach, nor can it be used as a subsidy to advance renewable energy sources, which means it does not have to be coupled with building new transmission lines. More efficient grid technology should be an investment made by the private sector, and if it will save money as Congress purports it will, consumers will do so.

Title 2, Energy Efficiency: The second title of the bill includes new energy efficiency standards for new buildings, rebates to low income families living in pre-1976 manufactured homes to buy Energy Star-rated manufactured homes, appliance efficiency standards, transportation efficiency, industrial energy efficiency, public & federal energy efficiency and utilities energy efficiency.

The Heritage Response: Energy efficiency can be beneficial for consumers, but rarely when Washington tries to force it on the public. Energy-efficient appliances and mechanisms will not painlessly lower electricity bills. These measures also impose costs, and consumers benefit only if the energy savings outweigh the costs. For one thing, mandatory improvements in efficiency usually raise the purchase price of appliances; sometimes the increase is more than enough to negate the energy savings. In addition, the forced reduction in energy use can come at the expense of reduced product performance, features, or reliability.

Advances in energy efficiency for appliances, or for any other product, do not require government regulations. Manufacturers and consumers are perfectly capable of determining for themselves the proper balance between energy efficiency and other product attributes. Rigid federal standards simply give efficiency priority over everything else, often to the detriment of families and businesses. Congress should keep in mind the unintended consequences when considering to mandate energy efficiency.

Title 3, Global Warming Regulation: The third title of the bill introduces a “market-oriented” cap and trade program that would reduce carbon dioxide 20% below 2005 levels in 2020, 42% below 2005 levels in 2030, and 83% below 2005 levels in 2050. Furthermore, it calls for strict, regulatory oversight by FERC and calls on the Environmental Protection Agency to use the “Clean Air Act to reduce emissions of black carbon domestically and study opportunities for reductions internationally.” The draft also says that “CO2 and other greenhouse gases may not be regulated as criteria pollutants or hazardous air pollutants on the basis of their effect on global warming.”

The Heritage Response: Despite Washington policymakers’ best attempt to call a cap and trade a market-oriented approach, it does not resolve the central problem that will continue to plague attempts to cap CO2. In reality, any carbon capping plan is a costly energy tax in disguise that will raise energy prices and unemployment with little environmental benefit. In fact, White House officials recently acknowledged a cap and trade bill could generate as much as $1.9 trillion in tax revenue over eight years, which amounts to a nearly $2,000 tax every year, for eight years, for every American household.

Since 85 percent of U.S. energy demand is met by fossil fuels, taxing the lifeblood of the American economy would have disastrous consequences. The Heritage Foundation’s Center for Data Analysis’ study of the Lieberman-Warner cap and trade bill found aggregate real GDP losses (adjusted for inflation) of nearly $5 trillion – for comparison, this is equivalent to the economic damage done by over 600 hurricanes. The bill would’ve also destroyed between 400,000 and 800,000 jobs each year. It should be noted that the targets and timetables in the discussion draft are considerably more stringent than those in Lieberman-Warner and thus would be costlier.

Title 4, Transitioning to a Clean Energy Economy: The last title of the bill includes a section that ensures manufacturers are not put at a disadvantage, either through rebates for additional costs for “sectors that use large amounts of energy, and produce commodities that are traded globally”, or by having “foreign manufacturers and importers […] pay for and hold special allowances to “cover” the carbon contained in U.S.-bound products.” The bill also promotes green jobs by providing grants to universities for students enrolling in programs to pursue careers in renewables, energy efficiency, and global warming mitigation. If countries reach an international treaty on climate change, the U.S. would provide foreign aid assistance to developing countries for clean technology.

The Heritage Response: Having foreign manufacturers and importers pay to cover the carbon products coming to the United States will only further increase costs for consumers. Under such a policy, not only will our energy costs be higher, but now everything we import will be more expensive too. Furthermore, it could lead to a trade war. Protectionism begets more protectionism. Other countries will view this as unfair, because it is, and respond by implementing more tariffs in retaliation. Also, any international carbon reduction plan would likely de-develop the developing world even with U.S. assistance for clean technology. Developing countries rely heavily on free trade to prosper. Exporting goods in which countries hold a comparative advantage is critical their economic growth, just like it is ours.

As far as green jobs are concerned, counting the number of green jobs a transition to a clean energy economy creates while ignoring the jobs the initiative destroys is simply highlighting the benefit while ignoring the cost. Support for renewables would likely cost more jobs than are created. For example, subsidies for wind and solar energy would, at least from the narrow perspective of the wind and solar industries, create new jobs as more of these systems are manufactured and installed. But the tax dollars needed to help pay for them cost jobs elsewhere, as would the pricey electricity they produce.

Join The Discussion

Waxman and Markey are finishing off a 600+ page bill encompassing Global Warming and energy. The bill, if passed, could very well devastate this Country with unnecessary taxes and push the cost of energy through the roof. Rush explained it best when he stated that this bill could devastate this Country.

Your math is wrong. You guys always forget to factor in the military cost of protecting our access to fossil fuels. All the thousands of troops overseas, and on the seas to protect our access to oil. You never factor in the thousands of decisions we make because our nations destiny is in the hands of others. Arguing against alternative energy sources, even more expensive energy sources, is both short sighted and a bit unpatriotic. Wouldn’t it be nice benefit if the shift of tax money to these technologies resulted in bringing our guys home…..in one piece.

[…] Of course it would. But that is not what this is about. It’s about taxing energy. From the Heritage Foundation: …any carbon capping plan is a costly energy tax in disguise that will raise energy prices […]

There is no way a "cap and trade" program is anything other than a tax scheme. It will cost the average consumer AT LEAST hundreds of dollars per year, and prevent many unemployed people from ever finding jobs. There is no way that taking money from the private sector will create jobs, other than in the public sector. You are promoting a boondoggle that will further impoverish millions of Americans.

So-called "green" energy (wind and solar power) is the most inefficient method available for generating electricity. It is unreliable. Solar power only works in the daytime, and wind doesn't do anything in calm air. A coal plant is dependable because it runs 24 HOURS A DAY!! Same with natural gas and nuclear.

As for "carbon footprints," how much greenhouse gas is created in the manufacturing of thousands of wind turbines? How much by the concrete pad that each one requires? How much is created by trucks, moving parts around prior to assembly?

Why don't you look at the geographic footprint of your "green" energy? How many square miles of currently open land is required for these methods of generation? One nuclear plant can generate just as much power as hundreds or maybe thousands of windmills, and, as noted above, it runs ALL THE TIME!! Have you considered the siting of this infrastructure? Who wants windmills or solar panels in their area? There was a plan to put a wind farm off the coast of Massachusettes, but it was stopped by wealthy landowners who didn't want their view impaired. I suppose you will put them im places where the people haven't got the political power to object. How egalitarian of you!!

You are nothing more than a bunch of snake oil salesmen, and I will put all the energy I can spare into stopping your plans."

Thank you, Heritage, for letting me put this comment where it will be read.

WHAT ABOUT PEOPLE THAT HEAT THERE HOUSE WITH WOOD. WILL THE GOV. TELL THEM THEY CAN'T USE WOOD ANYMORE, BECAUSE OF THE CARBON EFFECT.SO THE GOV. WILL SEAL UP THERE FIRE PLACES, OR FINE THEMFOR BURNING WOOD.

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